The impact of foreign direct investment (FDI) on future opportunities for catching up by developing countries is much greater than its importance as a source of capital. Indeed, transnational corporations presently set the pace for technological change and shape the distribution of production globally. Their influence on the opportunities for learning and innovations and thus growth and development in developing countries is unparalleled. This article explores these issues by presenting case studies, which attempt to analyse the manner in which two countries, Trinidad and Tobago and Costa Rica, have been able to use FDI strategically for innovation. It examines the manner in which their governments have situated FDI in a long-term development process whose goals go beyond technological capability building within a single enterprise to the much broader aim of strengthening local innovation capabilities system-wide.....read more